Parkson’s move to diversify yet to pay off
Ng Wai Mun 
Hogan Bakery has three stores in the country apart from others in Shanghai, China, which are under Parkson Retail Group Ltd

PARKSON Holdings Bhd has ventured into non-departmental store activities in recent years with hopes to diversify its earnings base.

However, many believe it should focus on its departmental store business as its diversification attempts have not been very fruitful.

“Parkson should just stick to the department store business, especially given its strong sales performance in Q4 FY17 ended June.

“Also, none of its previous diversifications has made much headway,” says an analyst.

He also questions why Parkson is moving into other businesses, which contribute little to its revenue of about RM4 bil per annum.

Ng says Parkson plans to open another 15 to 20 Hogan Bakery stores in the country over the next two years

Nevertheless, Parkson food and beverage (F&B) general manager Bernard Ng believes its diversification plans are crucial to boosting revenue.

“Parkson is seeking diversification to broaden its earnings base in related businesses such as F&B and supermarkets to complement its retail operations.

“F&B has become an increasingly important element in our offering. It not only represents a new revenue stream for the group but drives visitor traffic to our stores and provides patrons with enriching customer experiences,” Ng tells FocusM.

In the last few years, the departmental store operator went into other businesses, including F&B, restaurant, property management and theme park operations.


Parks and bakeries

In April 2015, the company ventured into the indoor “edutainment” theme park business with a 70:30 joint venture between Parkson Corp Sdn Bhd and Studio Kingdoms Network Sdn Bhd (SKN).

SKN owns the Little Kingdom brand rights for theme parks in Malaysia.

Parkson also owns a 75% stake in Johnny Rockets’ franchise holder Aum Asiatic Restaurants Sdn Bhd. It opened its first Johnny Rockets outlet in Malaysia in October 2013.

It also opened bakeries by bringing popular Taiwanese chain Hogan Bakery to the country. It recently opened its third store in Lion Tower, Kuala Lumpur.

The first two Hogan Bakery stores are at Pavilion Kuala Lumpur and Bukit Bintang. It was reportedly planning to open two more at Jaya Shopping Centre in November and IOI City Mall in December.

Ng says apart from the three stores operating in the Klang Valley, it also has outlets in Shanghai, China, which are under Parkson Retail Group Ltd.

“The company is listed on the Hong Kong Stock Exchange,” Ng says. Parkson Retail Group is a Parkson subsidiary.

Hogan Bakery is operated by Parkson Retail Asia Ltd’s wholly owned subsidiary, Solid Gatelink Sdn Bhd.

Parkson Retail Asia which is listed on the Singapore Stock Exchange is, in turn, a subsidiary of Parkson Holdings.

Ng says the company plans to open another 15 to 20 outlets over the next two years if it gets suitable locations.

It has budgeted between RM15 mil and RM20 mil to open the outlets.

While Parkson’s diversification activities may not be significant, an industry player says it does not mean it is not worthwhile.

“For example, how does one quantify the role played by a bakery in attracting traffic to a shopping mall or store where people end up spending on other things?” he asks.

The retailing-related business accounts for almost all of Parkson’s revenue, but in terms of geographical contribution, such income from its China market accounts for 66% of total revenue.

Of the balance, 25% comes from Malaysia and the rest from Indonesia, Vietnam and Myanmar.


Cross-platform efforts

That said, many are still unconvinced that Parkson’s expenditure on diversification and related activities are optimally utilised.

For example, its online retail business has not gained much traction and is not active.

“The online business of Parkson Malaysia has not ceased but is temporarily suspended as we plan to upgrade to a more suitable operating system.

“In China, apart from working with mobile payment partners, Parkson has its own mobile shopping app called Parkson Plaza.

“The app enables cross-department store sales. This allows customers to access products that are exclusive to designated stores or locations,” Ng says.

He says there will be more cross-platform efforts with the aim to create a seamless shopping experience for Parkson customers and help expand its revenue base.

Investors are also concerned about the burden on Parkson’s shoulders as it has given an undertaking to provide financial support for 12 months to Parkson Retail Asia, whose auditor has raised a “material uncertainty” over its (Parkson Retail Asia’s) ability to remain a going concern.

Ernst & Young notes that Parkson Retail Asia incurred a net loss of S$61.2 mil (RM190.6 mil) for FY17 ended June 30, and had a net current liability position of S$55.5 mil.

“The group’s ability to continue as a going concern depends on it generating sufficient cash flows from its operations, and the continued financial support from the ultimate holding company, Parkson Holdings Bhd,” the auditor says in its report.

As it is, things do not appear to be rosy for Parkson. In FY17 ended June 30, Parkson posted a higher net loss of RM119.18 mil from RM95.74 mil the previous year, despite achieving a 2% revenue growth to RM3.96 bil from RM3.88 bil.

Revenue growth was boosted by the Malaysian retailing segment which saw an 11% increase to RM985 mil.

This was the highest year-on-year (yoy) revenue growth achieved by Parkson’s Malaysian retailing arm since FY15.

Meanwhile, its Q4 FY17 revenue of RM973.51 mil represents a 10% growth yoy. This is the highest revenue growth in the fourth quarter in at least the last four financial years.

The departmental store operator benefited from the Hari Raya period, which resulted in commendable growth in Q4 FY17.


Same-store sales

The Hari Raya holidays fell on June 24, which was towards the end of Q4 FY17. Last year, the holidays fell on July 6, which was within its Q1 FY17.

With improved sales, an industry player believes the company is likely to see a turnaround soon.

With the latest Budget focusing on improving disposable salaries, such a move will only further improve retailers’ outlook.

A Public Investment Bank research report highlights that for Q4 FY17, only Parkson’s Malaysia and Indonesia markets reported positive same-store sales growth at 14.7% and 11% respectively.

Growth was mainly due to consumer spending in conjunction with the Hari Raya celebrations.

The research house maintains its earnings forecast with a “neutral” call on the stock and a target price of 75 sen.

Same-store sale is a term commonly used by retailers and refer to the change in revenue generated by existing outlets over a certain timeframe.

Retailers consider same-store sales figures as vital, as it helps evaluate current and future performances.

The data also reveals how effective the retail chain is managed to generate revenue growth from existing assets.

Without looking at same-store sales, the financial figures on growth or losses can be distorted with the incorporation of figures from newly opened outlets.

All said, Kenanga Investment Bank research is more bullish on Parkson’s outlook with a target price at 88 sen.

The research house likes Parkson’s strategy to optimise its retail format and expand its product and service offerings which are paying off.

Parkson is also minimising store losses by optimising their effectiveness and efficiency.

This article first appeared in Focus Malaysia Issue 256.